Following on from 6th December episode of Talking the Blues podcast, I want to look further at Everton’s board from two perspectives; (i) Governance and (ii) Corporate culture.
As will be well known by most Evertonians, Everton’s board of directors comprises of four individuals, Bill Kenwright – Executive Chairman, Denise Barrett-Baxendale – Chief Executive Officer, Marcel Brands – Director of Football and Sasha Ryazantsev, Chief Finance and Commercial Officer.
Whilst not unique in solely comprising of executives, ie those that derive some or all of their income from their position as board members and executive roles within the club, the absence of independent directors (ie those with no financial interest or previous association with the club) can be viewed as not being best practice from a governance perspective.
When is a board not a board?
Answer, when it has no oversight function. When a board is made entirely of executives then it ceases to be a board other than in name. It becomes a management committee, nothing more. Oversight at board level is (among other things) monitoring the actions of the executives in executing the wishes of the board. If the board and the executive are one and the same then how do they monitor themselves? Simply put, they cannot.
I ask the question because governance generally is an issue in football, but particularly, as I will argue, at Everton Football Club.
Governance rests on three dimensions, authority, decision-making and accountability. In other words, who makes decisions, what processes are involved in making the decisions and how account is rendered thereafter.
Corporate governance as a concept includes the separation of roles and responsibilities, communication channels, and behaviour between shareholders, board(s) of directors (both executives and non-executives) and the CEO. It is the system by which companies are directed and controlled. Boards of directors are responsible for the governance of their companies.
The responsibilities of the board include setting the company’s strategic aims, providing the leadership to put them into effect, supervising the management of the business and reporting to shareholders on their stewardship.
Corporate governance is therefore about what the board of a company does and how it sets the values of the company, and it is to be distinguished from the day to day operational management of the company by full-time executives.
The shareholders’ role in governance is to appoint the directors and the auditors and to satisfy themselves that an appropriate governance structure is in place.
Given that Farhad Moshiri has a 78% majority shareholding, he effectively determines the composition of the board, the governance structure and governance actions. The minority shareholders have the same rights to put forward their views on board composition and governance, but ultimately will only ever be subject to Moshiri’s approval. However, I believe the question needs to be asked as to whether at Everton, governance is as strong as it ought to be?
Why does corporate governance matter?
It matters because there is an abundance of empirical evidence to suggest strong correlation between governance and performance.
In an analysis (2019) of academic studies over a period of 16 years on this subject, Grant Thornton found “that companies with strong governance financially outperform those with weak governance”.
Furthermore, Grant Thornton found that strong governance supports the board and the organisation in its decision making in six key areas, namely:
• business model clarity and connectivity
• culture and value integration
• risk management
• internal controls
• board effectiveness
• succession planning
Even those with only scant knowledge of Everton’s internal workings can see that improvement in all of those areas would generate key benefits to the club. Let’s remember that the club exists to generate the resources to build the best possible football team, coach and maintain the team, and to provide the facilities in which fans can watch their team play and ultimately win trophies. Over the last 5 years we have grown used to being funded by Moshiri’s generosity as a shareholder and his connection with USM acting as an increasingly important sponsor.
Unlike the so called “big six” we have not developed and therefore palpably failed to build a sustainable business model that meets the running costs of the organisation, and provides the capital to invest in the team’s future development. The accounts for the year to June 2020 will yet again produce a significant and unsustainable loss as costs far outstrip income and a heavily reliance on shareholder debt and connected party sponsorship.
The board, comprising of executives, have no oversight in this regard. Without the addition of independent directors to question the actions of the executive (ie the board) then it’s difficult to see how this self-policing of the organisation and its performance can realistically result in improved performance, sustainability, growth and ultimately success on the pitch.
Ideally, from my perspective, apart from changes in the executive team (Chairman and CEO), I would like to see the addition of two independent directors – one with extensive commercial experience to oversee the business side of the organisation and one with extensive football experience to oversee Marcel Brands and the running of the football club itself.
In addition, ideally a non-executive Chairman both to provide leadership within and representation externally would significantly improve the performance of the company and therefore the club. It would hugely improve the corporate governance, oversight and appearance of the club.
All of which leads nicely into corporate culture. The culture of an organisation is intrinsically linked to its leadership. Culture is not something just outsourced to the human resources department. It should never be a secondary concern for any business – culture is the beating heart of an organisation from which all strategies, decisions and the effectiveness of executions derive. Culture is highly powerful and dynamic. As someone once said “corporate culture eats strategy for breakfast”.
One of the most important aspects of corporate culture is how enduring it can be, especially when the leadership of an organisation has remained constant and/or insufficient attention has been given to monitoring culture and making the necessary changes if the culture doesn’t meet the objectives of the business. The academic Benjamin Schneider introduced the attraction-selection-attrition model which says people are drawn to organisations with similar characteristics to their own. Organisations choose people who “fit in” and those that don’t tend to leave. Thus a social pattern is created which may be resistant to change. It can materially affect strategic thinking and the execution of such.
NSNO as a corporate culture?
It’s my belief that the culture across the club has to change in order to become successful once more. That doesn’t mean we need to dilute some of the more attractive values associated with Everton Football Club, but it does mean we have to become more single minded, more focused on success on and off the pitch. As I said on the podcast the culture across the club has to become re-aligned with the principles of NSNO. We have to excel at everything we do. I say re-aligned because there have been periods in our history when the club has absolutely adhered to “only the best is good enough”.
Interestingly, and I believe backing up the intrinsic link between culture and leadership, our periods of success, dominance and influence in football have been driven by the outstanding leadership of an individual or individuals. Our early dominance of English football both on and off the pitch can be attributed to the excellence and leadership of Will Cuff; Our great side of the late 1920’s and early 30’s through the greatest English goalscorer in history WR Dean; our dominance through the 60’s driven by the obsessive excellence of John Moores and the short lived dominance driven by the brilliant man management of Howard Kendall in the 80’s. Each period was defined by individuals who truly understood the meaning of NSNO (even though Cuff and Dean predate the motto).
The question is who takes us to the next period of achievement and alignment with what should always be our corporate and club culture? Clearly Ancelotti has the curriculum vitae to demonstrate he has and can operate at such rarefied levels. Brands too has a track record that suggests in the right circumstances he can create the footballing infrastructure (scouting, recruiting, training, sports science, medicine, player trading etc) to match that standard.
Beyond that though, regrettably the evidence is thin. If the corporate and club culture is to match our motto, and if Moshiri believes/understands the relationship between culture and leadership, he has to act. The NSNO culture can only be achieved by a change of leadership, by bringing in skilled, experienced individuals who have achieved corporate, perhaps sporting, success around the world. Moshiri is the rightful and legal majority owner of the club. But he is also a custodian of our long term interests in Everton Football Club. Our emotional investment in our club is perhaps of more value to us than his financial investment in Everton is to him.
Part of our emotional investment is the belief that Nils Satis Nisi Optimum is an accurate representation of how the club behaves and what it achieves on and off the pitch. For it to be genuinely the case, there has to be a massive change in culture and there has to be a governance model to ensure that the change is made and maintained. To do so requires a change of leadership at the top of the club, particularly with the Chair and CEO and an extension of leadership in bringing new independent oversight to the board.
The status quo will not achieve NSNO at our club…..